Capricor Therapeutics, Inc. — Q1 2020 Form 10-Q Summary
Business context and reporting period
Capricor is a clinical-stage biotechnology company developing cell and exosome-based therapies. Its principal programs include CAP-1002 for Duchenne muscular dystrophy (DMD) and COVID-19-related applications, and exosome technologies including CAP-2003. The filing covers the three months ended March 31, 2020; financial statements are unaudited.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 |
|---|---|---|
| Revenue | $185,693 | $230,504 |
| Research and development expense | $1.16 million | $1.81 million |
| General and administrative expense | $1.14 million | $0.98 million |
| Total operating expenses | $2.29 million | $2.79 million |
| Loss from operations | $2.11 million | $2.56 million |
| Net loss | $2.08 million | $2.52 million |
| Basic and diluted loss per share | $0.30 | $0.75 |
| Cash used in operating activities | $1.22 million | $1.61 million |
| Cash, cash equivalents and marketable securities | $13.2 million | $9.9 million at Dec. 31, 2019 |
| Working capital | $12.4 million | $9.6 million at Dec. 31, 2019 |
| Total liabilities | $4.70 million | $4.27 million at Dec. 31, 2019 |
The company has no commercial product sales. Reported revenue consisted primarily of government grant income and compensation for providing CAP-1002 doses for investigator-sponsored trials. Revenue represented approximately 81% of operating expenses, while the operating loss margin was approximately negative 1,135%.
Material changes versus the prior comparable period
- Revenue declined approximately 19% from $230,504 to $185,693.
- R&D expense declined approximately $656,000, primarily due to the timing of CAP-1002 clinical development activities.
- G&A expense increased approximately $162,000, principally because of higher investor relations expenses.
- Net loss improved by approximately $435,000, and loss per share declined from $0.75 to $0.30, partly reflecting a higher weighted-average share count.
- Operating cash use improved by approximately $390,000.
- Cash and cash equivalents increased to $13.2 million from $3.9 million at year-end 2019, primarily from marketable-security maturities and sales and equity financing proceeds.
- In March 2020, the company received approximately $4.9 million of gross proceeds from a warrant-inducement transaction, including the exercise of 4.0 million warrants; the transaction also issued 4.0 million new warrants and 200,000 placement-agent warrants.
- Outstanding common shares increased to 9.19 million at March 31, 2020 from 5.23 million at December 31, 2019, before additional shares issued after quarter-end.
Liquidity, debt and contingencies
- The company reported approximately $13.2 million of cash and cash equivalents at March 31, 2020 and approximately $4.7 million of total liabilities.
- The $3.38 million CIRM award liability remained outstanding. Capricor may elect to convert the award into a loan and could then be required to repay some or all of the amount, with interest; no election had been made as of the filing.
- The company stated that it will require substantial additional capital to fund operations and expanded clinical programs. Potential sources include equity or debt financing, grants, licensing transactions and strategic collaborations.
- On April 29, 2020, the company received a $318,160 Paycheck Protection Program loan bearing 1% annual interest and maturing April 29, 2022. The loan may be partially or fully forgiven subject to applicable requirements and approval.
- Approximately $12.7 million of cash deposits were uninsured as of March 31, 2020.
- No material legal proceedings or off-balance-sheet arrangements were reported.
Guidance, outlook, management commentary and risks
- Management expected 2020 spending of approximately $4.0 million to $6.0 million on CAP-1002 development and approximately $3.0 million to $6.0 million on exosome research and preclinical activities. Actual spending depends on clinical plans, FDA discussions, financing and partnering.
- Management reported positive 12-month top-line results from the 20-patient HOPE-2 Phase II DMD trial, including improvements in upper-limb, cardiac and respiratory measures. The company requested an FDA End-of-Phase 2 meeting to discuss a potential path toward a biologics license application.
- FDA feedback indicated that HOPE-2 was exploratory and did not provide substantial evidence of effectiveness for a BLA, although the FDA supported consideration of a Phase III trial.
- In March 2020, the FDA placed the investigator-sponsored REGRESS trial on clinical hold over reported patient-monitoring and safety-reporting concerns. The timing of release of the hold remained uncertain. Purchases of additional CAP-1002 doses for REGRESS were suspended.
- COVID-19 delayed additional testing in the ALPHA trial and delayed related dose purchases. The company also identified risks involving trial enrollment, supply chains, grant disbursements, sponsor payments, workforce stability and access to financing.
- Six severely ill COVID-19 patients received CAP-1002 under compassionate use protocols; the filing cautioned that the small, uncontrolled sample and concurrent experimental treatments did not establish efficacy. The company sought to conduct a larger randomized, placebo-controlled study, subject to FDA approval and funding.
- On April 15, 2020, the company filed an IND for CDC-exosomes in DMD, curing a default notice under its exosome license agreement.
- After quarter-end, the company established a $40 million ATM program and sold 1.8 million shares through May 13, 2020 for approximately $13.2 million of gross proceeds, before commissions and expenses.
Most important facts for investors to verify
- Whether available cash, the PPP loan and subsequent ATM proceeds are sufficient to fund planned operations and clinical programs.
- The status of the REGRESS clinical hold and the effect of COVID-19-related delays on ALPHA and other studies.
- FDA feedback and the regulatory pathway, trial requirements and financing needs for CAP-1002 in DMD and COVID-19.
- The statistical, clinical and safety significance of the HOPE-2 results, noting that reported p-values were nominal and unadjusted for multiple testing.
- The potential dilution from outstanding warrants, stock options and additional equity financing.
- The company’s decision regarding conversion or repayment obligations associated with the approximately $3.4 million CIRM liability.
- Whether the exosome IND and license-related milestone cure lead to continued exclusive rights and progress toward clinical development.